What will the Fed do in 2023?
Posted by Ri Prasad on Tuesday, December 20, 2022 at 5:53:01 PM
By Ri Prasad / December 20, 2022
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Fed hikes slow but will probably go higher
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- Tightening credit quality. “At the margin, banks are starting to tighten underwriting standards,” Ramsden tells Exchanges host Allison Nathan. “Rather than pulling back in terms of availability of credit, I think what most banks are doing is adjusting the price of that credit or the price of that loan to really compensate them for what they perceive the economic risk to be.”
- Inflation impact. “Very simply, inflation has resulted in more loan demand over the last few years. So, as an example, if you go out and buy a used car today, it's probably going to cost 20% to 30% more than three years ago. Which means that the size of the loan is 20% to 30% larger than a few years ago,” Ramsden says. “There's a lot of focus around how inflation could impact credit quality, especially at the lower income cohorts for households.”
- Focus on portfolio construction. “When we pivot to '23 and perhaps longer — with a less accommodative Fed policy — you could see much more focus on downside protection. I think probably more search for alternatives. And more ways to look for uncorrelated assets,” Blostein says.
- Pick up in M&A? “One of the themes we've heard loud and clear from a number of large private equity firms is that the appetite for public-to-private transactions is definitely starting to pick up for the first time in quite a long period of time,” Blostein adds. “We're likely to see more public-to-private transactions. So that will help the M&A backdrop.”
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